Decline in value of rupee per dollar expected next week

The rupee, amid a lack of fresh triggers and an anticipated high dollar demand from importers at monthend, is expected to remain range-bound against the US dollar in the coming week.

During the outgoing week, the local currency fell by 0.29% against the dollar in the interbank market. On Monday, the rupee closed at 284.97 to the dollar as opposed to 285.82 on Friday.

However, in the open market, the domestic currency was reportedly trading with a premium of Rs15 as compared to the interbank rates. The rupee hit record Rs300 against the dollar in the open market during the week, according to the Exchange Companies Association of Pakistan (ECAP) rates.

A currency dealer said: “The direction of the rupee over the course of the next week will be determined by the supply and demand for dollars. The rupee will depreciate if importers enter the market to buy foreign currency to meet seasonal [month-end] demand.”

“We expect that the rupee will trade at 285-286 per dollar next week,” the dealer added.

For the local currency, exporters are not selling forwards. In fact, due to the high cost of holding dollars (or rupee interest rates), most exporters are settling their proceeds relatively early, said Tresmark in a weekly note.

“Whereas importers, though they can’t book forwards, are not ok with costing rupee materially higher than at 300 per dollar. These market factors signify that rupee is range-bound between the 280-300 level for the time being,” it said. “Of course, any negative trigger will make it volatile, as could be seen with Imran Khan’s arrest during which rupee traded as low as 299 per dollar.”

The note stated that June would be heavy with government related outflows and the rupee to remain under pressure in next few weeks, but might not cross Rs300 a dollar in the interbank market.

“While Pakistan’s credit default swap has been mostly unchanged during the last two months, bond prices trading below 50 cents to a dollar signify that investors are pricing in a default,” said Tresmark.

If Pakistan is unable to acquire the financing, the rupee might fall as low as 350 to the dollar in June, Bloomberg reported citing an analyst.

The chance that the IMF won’t provide a bailout, which is necessary for Pakistan to avoid default in the fiscal year beginning in July, is growing, according to analysts, and this is why the capital is departing the nation.

Pakistan’s balance of payments position continues to remain under stress, with foreign exchange reserves still at low levels of $4.3 billion —enough to cover hardly one month of imports.